Why FinTech Becomes More Relevant During a Financial Crunch

Undeniably, the current pandemic has affected the global economy in more ways than we can imagine, causing various industries to suffer financially. However, as the saying goes, “every crisis brings opportunities”. Even in the current state of bleakness, the pandemic may have unravelled something worthwhile for the financial industry.

For decades, banks and other related financial entities have primarily focused on retail banking and investments in a conventional way. While this approach is still essential, the need for a more efficient process, leveraging technology, has to be taken into consideration especially in the midst of the coronavirus pandemic. It is no secret that the onset of the current global crisis contributed to the urgency of developing an alternative approach towards financial service platforms as millions of people across the globe are confined in their homes with limited access to essential monetary services.

As such, financial technology(FinTech) becomes more relevant for its multitude of ability to cater the needs for a digitised approach in providing and improving the delivery and use of various financial services even when global supply chains come to a halt. This has also created promising investment opportunities for enterprises who wish to grow their business amid the financial crisis.

Figure 1: Why FinTech Becomes More Relevant During a Financial Crunch

Provides Digital Solutions

For the longest time, the banking sector has performed transactions that adhere to the widely accepted traditional method where people proceed to various bank branches to deposit, withdraw and invest. However, such an approach has proved to be insufficient and ineffective in addressing clients’ needs from a distance when it comes to countries under lockdown and people forced to stay indoors.

This calls for the shift towards a digitised approach through the investment on FinTech to ensure the financial ventures are aligned with services that are both advanced and practical. While the transition can be overwhelming, the need to remain relevant and competitive is a must for financial institutions to cruise through the current global financial storms.

Moreover, the development of remote access to financial coffers has always been a research priority in the emerging FinTech landscape. The combination of financial inclusion and the use of technology to cut operating costs have also propelled FinTech markets towards becoming a promising investment hotspot during and possibly after times of financial crunch as it offers an effectively cheap and long-term solution for the challenges faced by the financial service sector.

Ability to Rebrand Businesses

In today’s digital landscape, the adoption of FinTech is inevitable for financial institutions to stay competitive in the financial industry. Since its sudden appearance in the aftermath of the 2008 financial crisis, FinTech startups have been disrupting the financial scene by offering digitised financial services that are much more convenient for the customers as compared to traditional banking. As a result, established monetary institutions will need to adapt and rebrand by leveraging the benefits that FinTech provided.

Contrary to the opinions of the conservatives, the shift towards incorporating FinTech into business structures is anything but bad for the established banks, especially during a financial crisis. With the integration of FinTech, the financial services provided by banking enterprises, such as monetary transactions, insurance investments and many more, will be further enhanced in terms of speed and accessibility to cater to the needs of the customers. This in turn will allow enterprises to gain customers’ trust and revenue growth, even during the economic crisis. As such, the emerging FinTech market has become more relevant during the financial crunch for its ability to re-engineer the business structure of financial institutions to remain competitive when crisis strikes.

Provides Flexible Services

The microbial effect of the pandemic on the stock market and other investment platforms are staggering, with businesses, especially SMEs, across various sectors losing millions in days. If this trend continues, the chances of livelihood shutting down will increase and take a further toll on the already dire global economy. Thus, to avoid that, investors are in need of tools to manage their investment portfolios online.

However, due to the inflexible service systems and regulations upheld by traditional banks, there is little effort from the existing financial institutions to reach out to various quarters of the society, especially Small and Medium Enterprises (SMEs), during times of crisis. According to an enterprise survey done by the World Bank, an estimation of two billion people across the globe have no immediate access to financial services. Additionally, around 200 million SMEs have no proper monetary assistance to turn to during the financial crisis.

As such, FinTech is very much relevant, especially in times of financial crisis, as it fills the gap for alternative financing opportunities between traditional banks and SMEs. Instead of being limited to the common routine of depositing and withdrawing money into bank accounts, FinTech companies provide a variety of tailored and innovative financial services, like business loans, personal finance, wealth management and blockchain, in a growing digitised context without rigid restrictions on the qualifications. The convenience and the flexibility of tech-based services, coupled with the ability to adapt to the ever-changing financial environment with the use of technology have also transformed FinTech into a promising investment market amid and possibly even after the financial storm.

Challenges Faced by FinTech Companies

Unfortunately, despite the digitised benefits that FinTech companies bring, there are alarming concerns by the general public about the digitalisation of financial resources, specifically the digitalised personal financial information. This is understandable as security and privacy are the key concerns of users when it comes to digital platforms. Also, it is innate for humans to worry about the unknown and the uncontrollable, which in this case, are the cyber threats against the valuable information acquired by FinTech companies, even if one is fully prepared.

Figure 2: Challenges Faced by FinTech Companies

Cyber Attacks

Undeniably, there have been numerous cyber attacks surrounding FinTech companies in the past year due to their digitised nature. The acquisition of the highly confidential and yet valuable personal financial information such as credit card details, coupled with their digitised format, have exposed FinTech companies, leaving them vulnerable to both professional and amateur hackers. As such, cyber attack is a prominent problem that FinTech companies need to address to gain trust from the public. To solve this problem, the investment in a team of technical experts and cyber specialists is necessary to build a full-scale, robust cyber security solution which would allay the concerns of the general public.

Regulation

The highly flexible services provided by FinTech companies also put them in a vulnerable state against cyber threat, especially the FinTech startups. As FinTech is an emerging sector, many of its platform regulations are still being developed, leaving many grey areas for scammers to take advantage of. Such uncertainties have thus made the work of safeguarding FinTech SMEs against cyber threats a challenging feat.

To make the matter worse, the coronavirus pandemic in its full blast acts as a disruption to the security of FinTech SMEs, as the sudden surge of internet activity during the crisis will give way to more digital intrusion. As such, keeping up with the latest regulations and cyber protection are the priorities for FinTech companies, especially SMEs, to best protect and gain trust from their stakeholders.

To solve this problem, FinTech SMEs need a team of seasoned security legal advisors to stay on trend with the new regulations while protecting their platforms from cyber threats. This is to restore and improve the ties between the financial sector and the general public that have been crushed by the global economic crisis. Besides proper cyber protection, preventive measures by the public, such as the awareness and the alertness towards online scams, are much needed as well to help counter cyber threats.

Progress Onwards with FinTech Investment

Although traditional banking will continue to exist, the technologically-driven approach adds more value. Besides having access to a digitised analytical system that helps in business endeavours, FinTech companies also offer investors flexible and cost-cutting solutions to the problems they face during a financial crunch. This has thus propelled FinTech as a promising investment sector even after the pandemic.

However, every business model has a unique set of challenges ranging from regulatory to fundraising and competitive issues. It is therefore critical to anticipate such challenges and consult corporate advisors like Desfran. Spearheaded by one of the world’s leading management teams, we stay on top of trends and movements in various markets to help our partners know and pursue their options for growth. Contact Desfran today to explore your business opportunities in the FinTech markets now.

References

What is the Future of Global Finance, Weforum.org

Technology is Shaking Up the Financial Industry and Big Banks are Struggling to Adapt, Cnbc.com

How to Safeguard your Fintech Startup from Cyber Threats, Fintechweekly.com